Arif Habib Consortium submits highest bid at Rs135b; The government gets only Rs10b, the rest to be reinvested in the airline
The government is selling its 75% stake in PIA to the Arif Habib-led consortium for Rs135 billion. Photo: Screengrab
ISLAMABAD:
The government on Tuesday sold its 75% stake in Pakistan International Airlines (PIA) for Rs 10.1 billion in cash to business tycoon Arif Habib-led consortium, marking the completion of the first major privatization transaction in two decades by offloading the white elephant.
The consortium of Arif Habib, Fawad Ahmed Mukhtar, Gohar Ejaz and Aqeel Karim Dhedhi – Pakistan’s renowned businessmen – submitted the highest bid of Rs135 billion. for the 75% shares in the 13th round of open auction. It beat another cash-rich consortium led by Muhammad Ali Tabba.
Air Blue was disqualified from the open bidding after it offered Rs26.5 billion, which was almost three-quarters less than the minimum price of Rs100 billion.
The government had set a very low floor price even compared to the last failed attempt when it asked for Rs85 billion for 60% stake as the entity had negative equity.
Of the Rs135 billion, the government will get Rs10 billion ($36 million) and the remaining amount will be invested in Pakistan International Airlines (PIA) by the successful bidder, Muhammad Ali, adviser to the prime minister on privatization, said after the auction.
It was the second attempt to sell PIA in over a year and marks the first successful transaction since 2005, when the government had sold K Electric – the country’s largest electricity distribution company.
Prime Minister Shehbaz Sharif had wanted PIA to be sold for Rs 200 billion.
During the Cabinet Committee on Privatization meeting, which approved the minimum sale price, one of the cabinet ministers was in favor of selling PIA at any cost to get rid of the bleeding entity.
The government took Rs 670 billion from PIA’s books, which will now be serviced by the taxpayers. For the current fiscal year, the government has estimated Rs35 billion in debt servicing costs, which will continue for at least six more years.
From the start, the Arif Habib Group took an aggressive approach against the only competitor, which was initially conservative, adding Rs250 million in each of the first eight auction rounds.
After the eighth round, the Muhammad Ali Tabba group sought a half-hour break for internal consultation before finally “congratulating Arif Habib” as he raised the price tag to Rs 135 billion.
To make the second attempt successful, the government had also waived 18% sales tax on aircraft leasing, given Rs36 billion tax credit to the bidders and extended the time frame to clear the current over Rs33 billion dues from the Federal Board of Revenue (FBR) and the Civil Aviation Authority (CAA).
The bidders valued the company’s 100% shares at Rs180 billion or $640 million.
The privatization adviser said the winner should deposit two-thirds of the bid money within three months and the remaining amount within a year. He said the government would not transfer the shares equivalent to a third of the price until the successful consortium pays all the dues.
Muhammad Ali said the successful bidder will have three months to show interest in acquiring the remaining 25% stake in PIA at a 12% premium to the bid price. The adviser said the chosen bidder would have the option of bringing in two new partners, including an international airline.
There is a strong possibility that Fauji Fertilizer could become the fifth partner in the consortium, according to officials privy to the development.
The government’s desire is that after four years, PIA should have 40 functional aircraft and its passenger numbers should increase from 4 million to seven million annually, Muhammad Ali said.
PIA employees need not have any fear as all the good employees would be retained and compensated, said winner Arif Habib. He said that the existing employees would be trusted and that they should lead the airline.
The government has also separated the medical liabilities of PIA employees and parked them in the PIA holding company, which is now operated by the taxpayers.
The government has barred the new owner from firing any employee for a maximum period of one year. The winner has also been given ample time to clear the obligations of FBR and CAA.
We plan to add 18 more aircraft and depending on the traffic load, our plan is to bring the total number of fleets to 64, Habib said. PIA currently flies only 18 aircraft out of the fleet size of 34.
Muhammad Ali said that PIA’s liabilities had again started piling up and there was a risk that the amount may again increase alarmingly after removing over Rs 650 billion. from the balance sheet.
The Economic Coordination Committee (ECC) of the Cabinet on Tuesday approved Rs2 billion or over $7 million to clear the tax liabilities and make repayment of the principal of Roosevelt Hotel, New York, which is owned by PIA Investment Limited.
The successful privatization transaction of PIA may open opportunities for sale of other entities.
The PIA sale would also boost the confidence of the local investors who avoided investing more in Pakistan due to unfavorable business environment.
PIA currently has less than 6,900 permanent employees in addition to 2,900 contract employees.
It has privileged access to many busiest airports in the world, including Heathrow, London. The national flagship has 170 pairs of slots in various global destinations, including to the Gulf countries, North America and Europe.
“I have always maintained that whichever consortium succeeded, Pakistan would be the ultimate winner and today’s result fully vindicates this belief,” Prime Minister Shehbaz Sharif said in his congratulatory message.
The Prime Minister said that the strong participation of our leading business groups and some of Pakistan’s most experienced and respected investors is a strong vote of confidence in our economy and its future.
